Economic Development/Site Selector

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Economic Development is a constant topic for government and business leaders. For site selectors, it’s their job. Site selectors help companies in search of new territory find the best deal in terms of economic and tax incentives. Site selector John Lenio, Economist & Managing Director of CBRE’s Economic Incentives Group and Economist Jim Rounds of the Elliott D. Pollack and Company, will discuss economic development in Arizona.

Steve Goldstein: Good evening. And welcome to "Arizona Horizon." I'm Steve Goldstein in for Ted Simons. Arizona public schools got their report cards today, and there was some improvement. According to information released by the state department of education, there were about 60 more schools that got an "A" for the last school year than the previous year. About two-thirds of the schools earned either an "A" or a "B." 21% of schools improved at least one letter grade. 14% fell one letter grade. Those grades were based on AIMS test results. A bus strike started at midnight in the east valley. Tens of thousands of commuters were forced to find other ways to get around today. The amalgamated transit union local 1423 represents about bus drivers in the southeast valley, and the union called a strike after failing to reach an agreement with first transit, which runs the buses there. The bus drivers' union says they are striking over management rights in first transit's contract with valley Metro. Union officials fear that contract would allow Valley Metro to order first transit to cut wages or working hours. A smoking ban went into effect today at Arizona State University campuses. The new rule bans smoking and the use of smokeless tobacco at all ASU properties. That applies to private cars parked in ASU parking lots. ASU police say they won't be fining smokers, but instead will be informing them about the new smoking ban. Economic development is a constant topic for government and business leaders. For site selectors, it's their job. Site selectors help companies in search of new territory find the best deal in terms of economic and tax incentives. Site selector John Lenio, economist and managing director of CBRE's economic incentives group and economist Jim Rounds of the Elliott D. Pollack and company, are here now to discuss economic development in Arizona. Gentlemen, welcome. John how do companies decide where to expand and if they're going to expand?

Jon Lenio: Usually if companies decide they need to expand, it is because business demand is growing. Whether a company is building widgets or selling financial services, that create demands for jobs. Typically companies they vote with their feet based on where they can hire people. It is labor-market driven at the end of the day.

Steve Goldstein: How is Arizona doing?

John Lenio: Competitively. Arizona, greater Phoenix and greater Tucson areas falling on the short list. When companies are looking to hire, jobs, whether financial services or manufacturing, Phoenix has the depth of the labor base at a reasonable cost relative to other major markets, which is keeping it toward the top five on the list.

Steve Goldstein: What do you think about what he said?

Jim Rounds: Spot on. About four years ago we collaborated with John on the economic development report, ranking Arizona compared to a lot of other states. We were the only state without a major economic development program. We have moved up quite a bit. Probably near the middle of the pack. That is actually a good thing. A lot of states are giving away more than they should in incentives. It is better to be a state not necessarily number one in terms of volume, but in intelligently providing these things.

Steve Goldstein: People are a little cynical about things like the commerce authority -- what are they accomplishing and are they working together, should they be working together more?

Jim Rounds: They're collaborating quite a bit. That was one thing we thought was important. We needed to establish the tools. We needed the right people to manage the tools. The only way to do it effectively is to collaborate. We're seeing them significantly involved in business location deals, which is helping the employment base.

Steve Goldstein: John, what kind of impact is that having?

John Lenio: I think it has a significant impact. When companies are looking at the greater Phoenix area, Arizona in particular, they want to know that the state is aligned with the community, aligned with the regional marketing group. At the end of the day, all of our competitors, everybody is at the table singing from the same song book.

Steve Goldstein: What about California? There was the big push, this idea that California's taxes was going on. California was in a hole. The tax policy remains in effect. Still California. Economy bouncing back. Major communities there. Is Arizona going to be able to track some of those jobs that the optimistic folks said they would be able to?

John Lenio: I think so. It costs less to employ people here. That is a big driver. Business taxes are lower compared to California. So, I don't see anything changing. If not, I see it improving as far as jobs across the border.

Jim Rounds: The economic development -- we could be working on a deal, monitoring a deal where the labor costs are driving the majority of the discussion and the incentives are much less than maybe the labor market savings if they came here versus another area. It also gets to promotion. Coordination between the economic development entities, if we keep better promoting the stay, we can get as much of a benefit as when we have to hand out dollars to --

Steve Goldstein: People are concerned about K-12. Also concerned about the idea unlike California, we don't have a lot of universities, institutes of higher education.

John Lenio: I -- we don't receive any negative criticism from our clients about our education system. The reality is, higher skill set positions, there are people out there who are educated, who have the degrees that we can find reasonably. It is all relative to other major Metro areas. Despite that fact, there is really no negative criticism that comes up at all.

Steve Goldstein: What about education?

Jim Rounds: That's a tough one. When we talk about infrastructure investment, put down a road, you can stand on the road, drive on the road, easy to promote. Education is more of a long-term play. It is more difficult to bring that to the table in the economic development discussion. What I hope we would do is not let things deteriorate for somebody like John come in and say education is an issue. You have to take care of these things early on.

Steve Goldstein: One negative that stands out to me. It's one. Google expanded, and when Google came in, flashes of lightning, everyone was excited, and then when Google sort of left, it was much quieter. Why didn't Google work here? And the reason Google left, is that still a concern that people living here should worry about?

John Lenio: I'm not sure why Google left. Usually when companies are looking to relocate, either their business plan does not work here. They cannot find the quality of employees or even of the students. That is typically why companies leave at the end of the day. Greater Phoenix area, Arizona, really nothing systemically wrong at the end of the day. As Jim mentioned in terms of business development efforts, it's getting the word out that Arizona is open for business.

Steve Goldstein: Let's go back to Google what do we know about why Google left and is there a concern that could be we attract another big name? Does it look bad for Arizona to attract a big name and then lose it?

Jim Rounds: No, because a lot of companies are basically employing for hire. They go to one state, another incentive three years later when that deal is done and move to Texas. Usually Texas is a place they go to because they overpay. That's fine. They're creating their next fiscal crisis. You look at one company whether or not they want to stay here, you can import labor if you need it. Filling the void for one company is not a problem. Normally you would suspect there is other things going on as well.

Steve Goldstein: John, who do you think our biggest competitors are? Doesn't have to be a short list, it can be a long one.

John Lenio: Typical competitors on the short list, Denver, Dallas, Austin, Columbus, Charlotte, Atlanta is there also. All of the major Metro markets have the same features. Deep labor base, great real estate. They have a great tax structure. And really at the end of the day, it's all about how the government entities are collaborating together that wins the deal.

Steve Goldstein: How much attention should we pay to economic development rankings? They come out frequently. The average person is not sure which ones are really accurate and make sense. Even if we're not sure what list to look for, what are some factors in the list to look at?

John Lenio: Major factors, number of corporate relocations. Number of businesses announce that they're locating. Amount of capital investment, companies that spend a lot of money on equipment or buildings actually make money for the communities at the end of the day. For our business, even the clients that we work with, the rankings are great, but we only pay attention to them in the first five seconds and then you get down to the real numbers.

Jim Rounds: I hate the majority of most of the ranking studies, and it's because they're so flawed. There was one study that came out that got a lot of attention this past quarter. Our position moved quite a bit. We dug down into the numbers. We found out even though our ranking was 19 in the country, that the margin for error could have put us at number one or number 50. Well, you can just -- well, you can guess and you are as accurate as an official ranking. In most cases, they're using bad data, or large margins for error. Unfortunately, that information gets out there. But how do you counter that? You promote the state and you address these issues when they come up.

Steve Goldstein: What sort of information to you makes sense? The average person, person who is not an economist that can dig in like the two of you can.

Jim Rounds: It's tough. A lot say it's based on a survey, based on economic data. You can look at the numbers. More credible ones post the numbers. You have groups like the commerce authority, G-peck may or may not be looking at this. If we're ranked poorly, let's figure out why. If it is a bad ranking, let's fly there and give them a call and say you have a flaw in your study. You may want to look at it more closely. We have to address them one by one.

Steve Goldstein: Let's go back to the issue of economic incentives. There was some trouble in Phoenix. People bring up City North, as -- when it comes to economic incentives, attracting companies and businesses that you work with, what makes sense? Economic incentives that still make sense?

John Lenio: The down side of staying away from providing incentives you lose your ability to compete for big projects, whether headquarters or manufacturing. Incentives are important. Tax credits, grants, job training, top three that most every other competitive state has. From our point of view, incentives always comes up, about 90% of the time. Because companies are very sophisticated now.

Steve Goldstein: What incentives make sense and you mentioned you made fun of Texas a little bit. I noticed that. What can Arizona do to avoid falling in that kind of trap?

Jim Rounds: It is about managing the incentives well. I've been on the fence on the incentives issue for a while. I'm all for government getting out of the way of business and letting them operate and maximize their opportunities. The commitment we have had so far to manage them properly. Not give away more than we're getting in return. Think about whether or not we want to spend the money on certain companies. Going after the higher value added companies that have other spin-off jobs and enhance our economy. As long as we are managing them well and not giving away too much, I'm a supporter. The other direction --

Steve Goldstein: Economy not recovering as fast as people would like. When we look at incentives and trying to draw businesses here to Phoenix or Arizona, should there be a concern that there are certain kind of jobs, Jim talks about, want the higher rage jobs of course, but as fewer people are being hired, will we have more part-time jobs? How does that work in terms of drawing businesses? From a state point of view, what sort of businesses should we want to attract? Can we attract the higher level businesses that we all talk about?

John Lenio: Our economist geek speak is always looking for the biggest ripple effect. Drop a river rock in the pond, you want the deepest ripples at the end of the day. Higher wage jobs, that creates demand for the part-time jobs, lower level service and retail jobs. From the state's stand point, they don't have to worry about that. That is a symptom of doing their job right, which is attracting these bigger-name companies that hire a lot of people with a lot of investment and high salaries.

Steve Goldstein: What about that part-time versus full-time?

Jim Rounds: We're at the point in the recovery where we're not adding the higher value added jobs just yet. This is normal. Construction-related jobs, service oriented jobs. I'm not worried about it at all. If we are talking about it in two, three years, I would be more worried. Expect part-time jobs right now. Things are going to change quite a bit. It has improved. Number eight in the country in terms of employment growth. We're moving in the right direction. Don't be worried just yet if it is not $100,000 a year in terms of the annual salary on the jobs that we're created. That's not normal economics. If two years if we're having the same conversation, maybe we can start to say what are we doing poorly because we're not keeping up with how we used to grow.

Steve Goldstein: Are we heading in the right direction?

Jim Rounds: Heading in the right direction. Never heard the word geek applied to economists before. I'm happy with what I see on the economic development front. I think everybody is trying their best. We're seeing decent business location so far in the state that we wouldn't have seen otherwise.

Steve Goldstein: John, you're not hearing negative things about Arizona, so I presume you also think we're moving in the right direction.

John Lenio: I think we are. Reality it has been three, four years since the economic development sophistication got enhanced. Typically across the U.S., it takes sometimes five, 10 years until you see a big blip in the data. From a mindset point of view, the state, communities, regions are all working well together and it's all a matter of doing business development and getting people to look at Arizona.

Steve Goldstein: John, Jim, thanks so much for the conversation. Appreciate it.

John Lenio: You're welcome.

John Lenio:Economist and Managing Director, CBRE's Economic Incentives;Jim Rounds:Economist, Elliott D. Pollack and Company;

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